Last week President Obama revealed a plan to help graduates struggling with student loan debt find relief. As one of the fastest growing demographics of bankruptcy filers, student loan debt now tops $1 trillion nationally in debt. College graduates have been suffering for years with more debt than job market incomes can support. While many cling to hope that the new plan will provide much needed relief, others are less than supportive of the plan.
All In Favor?
Obama’s plan is aimed to accelerate a measure previously passed by Congress that was supposed to go into effect in 2014. The accelerated plan will begin in January 2012 and set a maximum required monthly payment cap at 10 percent of discretionary income annually. The plan also allows for loans to be forgiven after 20 years, as opposed to the previous 25 years. Perhaps the most talked about portion of the plan is the new loan consolidation option, in which borrowers can consolidate their loans into one loan with a reduced interest rate. With so many proposed benefits, why are so many criticizing the plan?
Aside from political party bickering, many opponents of the plan are concerned whether it will actually benefit borrowers in the way it is being proposed. First, the loan consolidation program contains many details that may prevent some borrowers from qualifying. A borrower must hold loans funded from a particular source and the consolidation program would lower the interest rate by only 0.5%, providing an average savings of $10 a month. Second, the required monthly payment cap only applies to those who graduated in 2011 or later, graduates from earlier years would not benefit from the 10 percent payment cap. Lastly, the loan forgiveness time frame is still too far away for any real benefit to be seen. Of the $1 trillion in student loan debt, 82 percent of that was acquired in the last 10 years; which means borrowers have at least another 10 years before the loan forgiveness allowance could be claimed.